President Donald Trump's administration late on Tuesday launched the process to impose the latest round of levies, only days after duties on $34 billion in goods took effect.

US Dollar and China Yuan notes are seen in this picture illustration. (File Photo: Reuters)

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New York: World stocks fell Wednesday after Washington threatened to hammer Beijing with tariffs on a further $200 billion of Chinese imports, ratcheting up the global trade war.

Washington's announcement came just days after the world's two biggest economies exchanged punitive measures on a range of goods worth tens of billions of dollars.

"Markets are panicking about the impact of a tit-for-tat trade war on economic growth," Manulife Asset Management investment analyst William Hamlyn told AFP.

The news shattered the uneasy calm that had descended on markets and allowed them to regain some of the ground lost in recent months as the trade war slowly escalated.

Bourses in London, Paris and Frankfurt all lost more than one percent.

US stocks also finished decisively lower, ending a four-day streak of gains. Some of the biggest declines came from Boeing, Caterpillar and John Deere, all major exporters to China.

"The last thing investors want right now is a trade and tariff problem that could eventually hurt the stock market, which has held up so well," said Gorilla Trades strategist Ken Berman.

President Donald Trump's administration late on Tuesday launched the process to impose the latest round of levies, only days after duties on $34 billion in goods took effect.

China meanwhile said it was "shocked" and warned it would impose countermeasures "to safeguard the core interests of the country and the fundamental interests of the people".

- 'Geopolitical game of chicken' -

"It is going to get much worse before it gets better," Rabobank senior strategist Michael Every told AFP.

"It will get worse because nobody will back down: it's a game of geopolitical chicken, and nobody wants to swerve as nobody can afford to lose."

Crude oil prices also sank heavily, in part due to worries the trade conflict would sap growth.

The bigger factor in the oil market, analysts said, was the resumption of oil exports from four eastern ports in Eastern Libya following a disruption due to a clash between rival authorities in the war-torn country.

The trade war jitters also rocked Asia. Tokyo's Nikkei index dived 1.2 percent, with exporters hurt as the safe haven yen climbed against the dollar.

Hong Kong lost 1.3 percent and Shanghai ended off 1.8 percent.

Stephen Innes, head of Asia-Pacific trading at OANDA, said the latest US move was "a very sobering reality check as to just how fragile sentiment around trade war rhetoric is".

Observers will be keeping a close eye on the release Friday of Chinese trade data, which will give an idea about how the row has affected the country's exports.​